Definition of Large, Small and Micro Entities

The US Patent and Trademark Office (USPTO) recognizes three different entity sizes.  The first tier is referred to as a large entity. By default, an applicant is a large entity and must pay large entity fees. The second tier is referred to as a small entity. The small entity pays a reduced fee of about 50% the fee compared to the large entity. The third tier is referred to as a micro-entity. The micro-entity pays a reduced fee of about 75% the fee compared to the large entity.

When do you have to determine your entity size?

You have to determine your entity size and pay the proper fee:

1. When you file your patent application;
2. When you pay an issue fee; and
3. When you pay your maintenance fee.

For micro-entities, you have to determine your entity size and pay the proper fee, each time you make a payment to the USPTO such as when you pay an extension of time to file a response.

What do you do when your company grows?

It’s a great thing that your company is growing. However, with greater growth, you may be required to pay more in fees to the USPTO. You may be required to pay the increased fee if your entity size changes to a larger entity.

For small entities during the examination stage, you have to determine your entity size and pay the proper fee when you file the patent application.  You don’t have to reassess your entity size and pay the increased fee even if you become a large entity.  You pay the small entity fee throughout the patent pendency of the application.

For micro-entities, you have to reassess your entity size each time you pay a fee to the government.  If you become a small or large entity midstream, you have to pay the increased fee from that time forward.  If you fail to pay the higher fee, then your patent may be invalidated during litigation.

What do you do when your company downsizes?

You can pay a reduced fee if your company downsizes to a smaller entity size.  You can do so by claiming either a small entity or a micro entity as the case may be.

Now, if you pay more than you have to, your patents are not in jeopardy of being invalidated for paying too much to the patent office.  However, as discussed, failure to pay an increased fee does invalidate your patent.  Also, you can request a refund from the patent office for the extra payments made to the USPTO.

What can you do if you failed to pay the correct fee?

Let’s assume that you filed your patent application as a micro entity or small entity.  You paid the proper fees when you filed.  However, as you grew your business, you increased in size.  You should have paid the stepped-up basis in fees to the USPTO but you failed to do so.

You can petition the patent office to late pay the increased fee if the failure to pay the correct fee was unintentional.  However, if you failed to pay the increased fee intentionally, your patent is invalid and cannot be salvaged.

What is a large entity?

You are a large entity by default unless you qualify as a small entity or micro entity.  Large entities are companies that have 500 employees or more.  Part-time employees and employees throughout the world are included in this employee count.

Even if you don’t have 500 employees or more, you are still a large entity if you licensed your patent-pending or patented technology to a company with 500 employees or more.

Let’s assume that you are on the borderline.  You have 450 employees, not quite 500 employees yet.  You qualify as a small entity.  Nevertheless, we still recommend that you pay large entity fees.  Your patent will be invalid if you fail to pay the right amount of fees when your company grows to over 500 employees. It’s difficult keep track of the entity size.  Plus, the price difference between small and large entities isn’t significant.  As such, we recommend that you pay the higher large entity fees so that your patents are not invalidated.  The validity of your patents is much more important compared to the small savings of paying reduced patent fees.

What is a small entity?

 A small entity is defined as:

1. An independent inventor;
2. A small business; or
3. A nonprofit organization (e.g., university, 501(c)(3)).

Also, small entity status is lost if any patent rights are assigned or licensed to an entity that is a large entity. A small business is defined as an entity with 500 or fewer employees within the past year including part-time and worldwide employees. If your company is close to the 500-employee mark, as discussed, we recommend paying the large entity fee to be on the safe side. Otherwise, the validity of any patent maturing from the patent application may be in jeopardy.

As a small entity, the entity status must be reassessed when paying the issue fee or maintenance fees. If you are now a large entity, you must pay large entity fees for the issue and maintenance fees.

What is a micro-entity?

 A micro-entity is an entity that would qualify as a small entity plus the entity must not:

• have been named as an inventor on more than 4 previously filed nonprovisional patent applications (except provisional patent applications);
• have, in the calendar year preceding the calendar year in which the applicable fee is paid, have a gross income exceeding 3 times the median household income; and
• have assigned, granted, or conveyed (and is not under an obligation to do so) a license or other ownership interest in the application concerned to an entity that, in the calendar year preceding the calendar year in which the applicable fee is paid, had a gross income exceeding 3 times the median household

Three times the median household income can be found at www.uspto.gov/patents/law/micro_entity.jsp. As of 2022, the threshold income is $212,352.  If the inventor’s stated income level is close to this amount, we recommend filing as a small entity to be on the safe side. Otherwise, the validity of any patent maturing from the patent application may be in jeopardy. When applying the micro-entity definition, applicants are not considered to be named on a previously-filed application if he/she has assigned, or is obligated to assign, ownership rights as a result of previous employment.

The definition includes applicants who are employed by an institute of higher education (as defined in 20 U.S.C. 1001(a)) and have assigned or are obligated to assign ownership to that institute of higher education.

Micro entity status is lost if any patent rights are assigned or licensed to an entity that is a small or large entity. Also, as soon as micro-entity status is lost, small or large entity fees must be paid when a USPTO fee is required.

I invite you to contact me with your patent questions at (949) 433-0900 or [email protected]. Please feel free to forward this article to your friends. As an Orange County Patent Attorney, I serve Orange County, Irvine, Los Angeles, San Diego, and surrounding cities.